William_T._Bianco,_David_T._Canon]_American_Polit

Study guide 569

Goals of economic policy

Explain the main purposes of government involvement

in the economy. (Pages 533–539)

Summary

Policy makers’ pursuit of economic goals—such as full employment,

stable prices, or growth—is a complex process. Not only is the

government unable to attain these goals on its own, but the pursuit

of one goal often comes at the expense of other economic goals.

Practice Quiz Questions

1. The difference between fiscal policy and monetary policy
   is that fiscal policy is concerned with , while
   monetary policy is concerned with.
   a controlling the money supply and spending; taxing and
   interest rates
   b taxing and controlling the money supply; spending and
   interest rates
   c taxing and spending; controlling the money supply and
   interest rates
   d controlling the money supply and interest rates; taxing and
   spending
   e taxing and interest rates; spending and controlling the
   money supply


2. The CEA was established.
   a by the Employment Act of 1946
   b by the Balanced Budget Amendment
   c in Article I of the Constitution
   d in Article III of the Constitution
   e by the Federal Reserve Board

Key terms

public policy (p. 533)

fiscal policy (p. 533)

monetary policy (p. 533)

full employment (p. 533)

economic depression (p. 533)

Council of Economic Advisers

(CEA) (p. 533)

inflation (p. 534)

deflation (p. 534)

gross domestic product

(GDP) (p. 535)

balanced budget (p. 536)

budget deficit (p. 536)

current account (p. 537)

trade deficit (p. 537)

3. Technically, full employment means an unemployment level of
   about.
   a 0 percent
   b 1–2 percent
   c 4 –5 percent
   d 8 –9 percent
   e 1 0 percent


4. The responsibility of fighting inflation largely falls
   on.
   a the president
   b the OMB
   c the Congress
   d the Federal Reserve
   e the private sector


5. When the government attempts to reduce inflation, it typically
   results in.
   a growth for businesses
   b higher interest rates
   c lower unemployment
   d an increase in GDP
   e lower interest rates

The key players in economic

policy making

Describe the roles played by each of the branches

of government in shaping economic policy.

(Pages 539–550)

Summary

The primary actors in making economic policy are Congress, through

the “power of the purse”; the president, in shaping taxing and spending

policy; and the bureaucracy, in implementing monetary policy. While

they all share the same general goal of a healthy economy, coordinating

action across these actors can be difficult.

Key terms

budget making (p. 540)

budget reconciliation

(p. 540)

United States Trade

Representative (USTR)

(p. 544)

National Economic Council

(NEC) (p. 544)

Federal Reserve System

(p. 545)

Treasury Department

(p. 545)

Federal Reserve Board

(p. 545)

Study Guide

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